Recent IRS warnings and announcements regarding the Employee Retention Tax Credit (ERTC) have raised some businesses’ concerns about the validity of their claims for this valuable, but complex, pandemic-related credit — and the potential consequences of an invalid claim. In response, the IRS has rolled out a new process that certain employers can use to withdraw claims.
Fraudsters jump on the ERTC
The ERTC is a refundable tax credit intended for businesses that 1) continued paying employees while they were shut down due to the pandemic in 2020 and 2021, or 2) suffered significant declines in gross receipts from March 13, 2020, to December 31, 2021. Eligible employers can file claims until April 15, 2025 (on amended returns), and receive credits worth up to $26,000 per retained employee.
With such potentially large payouts, fraudulent promoters and marketers were quick to rush in with offers to help businesses file claims in exchange for fees in the thousands of dollars or for a percentage of any refunds received. The requirements for the credit are strict, though, and the IRS has found that many of these claims fall short of meeting them.
Invalid claims put taxpayers at risk of liability for credit repayment, penalties and interest, in addition to the promoter’s fees. And promoters may leave out key details, which could lead to what the IRS describes as a “domino effect of tax problems” for unsuspecting employers.
The IRS responds
The wave of fraudulent claims has produced escalating action from the IRS. In July 2023, the agency announced that it was shifting its ERTC review focus to compliance concerns, with intensified audits and criminal investigations of both promoters and businesses filing suspect claims. Two months later, it imposed a moratorium on the processing of new ERTC claims.
The moratorium, prompted by “a flood of ineligible claims,” will last until at least the end of 2023. The processing of legitimate claims filed before September 14 will continue during the moratorium period but at a much slower pace. The IRS has extended the standard processing goal of 90 days to 180 days and potentially far longer for claims flagged for further review or audit.
According to the IRS, though, the moratorium isn’t deterring the scammers. It reports they’ve already revised their pitches, pushing employers that submit ERTC claims to take out costly upfront loans in anticipation of delayed refunds.
Now, the IRS has unveiled a new withdrawal option for eligible employers that filed claims but haven’t yet received, cashed or deposited refunds. Withdrawn claims will be treated as if they were never filed, so taxpayers need not fear repayment, penalties or interest. (The IRS also is developing assistance for employers that were misled into claiming the ERTC and have already received payment.)
The withdrawal option is available if you:
- Claimed the credit on an adjusted employment return (for example, Form 941-X),
- Filed the adjusted return solely to claim the credit, and
- Requested to withdraw your entire ERTC claim.
The exact steps vary depending on your circumstances, including whether you filed your claim yourself or through a payroll provider, have been notified that you’re under audit, or have received a refund check that you haven’t cashed or deposited. Regardless of the applicable procedure, your withdrawal isn’t effective until you receive an acceptance letter from the IRS.
Taxpayers that aren’t eligible for the withdrawal process can reduce or eliminate their ERTC claim by filing an amended return. But you may need to amend your income tax return even if your claim is withdrawn.
Seek help
Throughout its warnings about potential ERTC pitfalls, the IRS has continued to urge taxpayers to consult “trusted tax professionals.” If you’re having second thoughts about your ERTC claim, we can help you review your claim and, if appropriate, properly withdraw it.
© 2023
Related Insights
Featured Post
Featured Client Testimonials
BW is a true partner to us. Their knowledge, expertise, and service are a valuable resource to us and play an important role in our success!
John Allen - Vice President of Finance, Kaufman Container
Featured Client Testimonials
I appreciate the exceptional tax advice we received over the years. The (BW team) has a good grasp of our business needs. Thank you for your excellent service.
John Griffiths - Owner, Rae Ann, Inc.
Featured Client Testimonials
Barnes Wendling has been our company accountants for over seven years. Their knowledge has been instrumental in helping us grow strategically during this time. And although we’ve seen many changes in our economy that we cannot control, we’ve always been able to trust the Barnes team to be by our side. The Barnes team feels like family. We can’t thank them enough for their support!
Christine Kloss - Controller, AT&F
Featured Client Testimonials
Barnes Wendling has been our company accountants for over 15 years. During this time, the business has grown exceptionally, and Barnes has kept pace, providing accurate, quality advice. Our finances are more efficient than ever, and the expense of hiring Barnes has been a definite positive add to our bottom line. I give my highest recommendation to their firm.
David Miller, MD - President, Retina Associates of Cleveland
Featured Client Testimonials
Barnes Wendling has provided us guidance and recommendations that have strategically helped strengthen our business and position ourselves for growth. We needed to hire a new VP of Finance and Controller this past year, and they were instrumental in helping us find the best candidates for our company.
Sara Blankenship - President, Kaufman Container
Featured Client Testimonials
We value the trust, accuracy of information, and reliability of Barnes Wendling and Mike Essenmacher personally. Mike has been instrumental as a trusted advisor on accounting, tax, and personnel issues. His advice is always accurate, and he is very reliable. His associates are also very talented.
Dominic Ozanne - President and CEO, Ozanne Construction Company
Featured Client Testimonials
We value Barnes Wendling’s expertise with all things accounting so we can operate our business using our strengths and allowing them to be our experts. They have also brought me a few business sale opportunities to allow me to grow my assets.
John Gaydosh - President and Metallurgical Engineer, Ohio Metallurgical Service
Featured Client Testimonials
Barnes Wendling (especially Lena) did a great job with our financials. Everything. It is extremely refreshing and comforting to know that all of our numbers are not only correct, but they are in the right place(s). Your diligence and reporting truly does make me (personally) feel better.
Thomas Adomaitis - Controller, Bialosky Cleveland
Featured Client Testimonials
I can wholeheartedly tell you that I have yet to work with an audit or tax team that have been more helpful, easy to work with, and committed than the team at Barnes Wendling- I have been through three different firms in the last few years.
Michelle Saylor, Former Controller, Aero Mag
Featured Client Testimonials
Floyd Trouten at Barnes Wendling CPAs is an “expert’s expert” when it comes to M & A accounting. Not only does he understand the evolving details of the Tax Code but he also sees the fine points of their application for owners, managers, investors, and financiers.
Mark A. Filippell, Western Reserve Partners
Featured Client Testimonials
The service is amazing at Barnes Wendling CPAs. The benefit is worth more than the cost. Sometimes it’s true that you get what you pay for.
Mark Boucher - Former Owner, Castle Heating & Air